Basket Trading Gains Ground

GREENWICH, Conn. (HedgeWorld.com)–Portfolio trades accounted for 40% of share trading volume among institutional investors, including hedge funds, according to a recent survey by Greenwich Associates.

The survey also shows that portfolio managers and traders using portfolio trading got only a minor increase in compensation in 2002.

Portfolio trading, or the trading of baskets of shares of 15 or more stocks by a definition Greenwich and others use, is on the upswing as a means to reduce trading costs in an investment environment that has been more cut-throat, said Melissa De Vries, a market analyst for Greenwich. Greenwich executives note that portfolio trading costs usually come in at between 2.2 cents a share to 2.5 cents a share, about half the cost of U.S. agency trades.

The technique also is gaining ground with U.S. investors trading international shares, the Greenwich survey says. The volume of portfolio trading in U.K. and European stocks by U.S. managers doubled to 16% from 9%, while the volume rose to 6% of all trading from 4% for shares in the Asia-Pacific region, in the 2003 survey.

Greenwich says that portfolio trading is becoming more efficient through the use of direct-access trading systems, which reduce cost, improve traders’ work flow and allow traders to better monitor trade execution. Direct access allows traders to get under the hood, making trades more transparent, according to Greenwich executives.